Money: The Market and Freedom

There is a market for everything, including freedom. In the ideal libertarian world, the price of freedom is as close to zero as it can be. Where political freedom is absent, freedom is still possible, but it is effectively priced out of the reach of the majority of people.

For example, what political freedom used to exist in South Vietnam and was taken for granted by most people has now gone. Vietnamese can still gain freedom by escaping. But this requires sufficient gold to bribe officials, buy a boat or passage, etc., and knowledge of which officials are safe to bribe and who is willing to sell a boat. Clearly, the price of freedom in South Vietnam has skyrocketed.

We can look at freedom in two ways: politically, as the libertarian non-coercion principle which, in the body politic, is being eroded on almost a daily basis. Or economically as the potential to achieve and enjoy one's personal aims and the ability to avoid political restrictions.

Where relatively free markets in goods and knowledge exist, two opposing forces are at work: government, which seeks to restrict your freedom, and the market, which can result in the expansion of your ability to enjoy what freedom you have left. The market can also generate methods of avoiding or blunting the effects of government interference. If the market is expanding faster than government restrictions, it could well be that your effective freedom is rising.

In the long term, a point we may already have reached, a combination of inflation and government restrictions will undermine the market's ability to grow faster than government. But the market may yet have a few trumps to play.

A few statistics often help to illustrate, even though they may be of dubious value. Between 1965 and 1976 (in "constant" 1975 dollars) US gross domestic product (GDP) grew from $1,169 trillion to $1,685 trillion. Government expenditure (which exceeded taxes in both years) was 27½ percent of GDP in 1965, and rose to 34.3 percent in 1976.

Subtracting government expenditure from GDP, we find that $847.9 billion was left to American citizens in 1965, or $5,950 per American. Despite the 25 percent increase in government between 1965 and 1976, $1,107.3 billion remained for the citizens' enjoyment in 1976, a rise of 31 percent, to $7,834 per person.*

I am not going to claim that the "average American's" freedom has gone up 31 percent. In the area of personal disposable income, the market has (if we can believe government statistics) expanded sufficiently to pay for the increase of government and do even better for the people. But bare statistics hardly tell the full story.

Twenty years ago air travel was a luxury and those who could afford the time and money to travel went by sea. In 1957 I went from Australia to England by sea. It took three weeks just to get there. A couple of months ago, I went from Hong Kong to Europe and back, spent two days travelling and the rest of three weeks working and having fun in six different European cities.

This revolution in travel was caused by the market. And continues in spite of government. Witness the battle and success of Freddie Laker.

This kind of qualitative change, the expansion of your time and horizons, does not show up in government statistics. Twenty years ago, except for the once-in-a-lifetime trip, few could afford to lose seven weeks' wages and pay the cost of a ticket for a three-week holiday in Europe. Whether for fun, for business, or to visit your Swiss banker, the travel revolution has profoundly broadened your potential sphere of action.

This is more than just another way of looking at the effect the unrestrained market has in increasing the general standard of living. Certain products of the market can prove bastions against government encroachments. Or, wittingly or otherwise, circumvent the effect of interventions.

Britain, for example, has stringent exchange control regulations. One provision is that no resident may take more than £ 200 (formerly £ 50) in any form of currency out of the country without permission. Imagine the kind of holiday you could have abroad with only $350 in your pocket!

The market generated a number of ways around this problem so that the average Briton, who has no special knowledge of exchange control regulations or political pull to get special permission, can enjoy holidays abroad. Package holidays, with all accommodation, meals, and so on paid in Britain before departure, was one method. But the advent of the credit card has all but repealed British exchange controls for the average traveller.

The British holder of an American Express card, or the equivalent of Master Charge or Visa, can use his credit card all over the world to buy airline tickets, pay for hotels, rent cars, go shopping, buy theater tickets and meals in restaurants. He could spend thousands of pounds in the United States or on the continent even though he is only allowed to take $200 in currency out of the country.

When our credit card traveller returns home, he is billed by the credit card company in pounds sterling. The credit card company then has the problem of making overseas payments, but it has blanket authority to move money in and out of the country. Otherwise it couldn't operate. It can also match payments: expenditures by German credit card holders in England can be offset against Britons' expenditures in Germany, and so on.

Credit cards are widely used to circumvent foreign exchange controls. A number of multinationals issue their New York and European executives with credit cards billed to their South African subsidiaries. The reason: South African exchange controls make it difficult to move money out of South Africa.

The market has thus undercut the intent of a government regulation, even though the regulation operates as it always did! In the United States, which does not (yet) have exchange controls, the market offers some protection against the introduction of such controls. As more people travel overseas, and as the volume of international dealings increases, it will prove more difficult, both politically and practically, for the government to introduce stringent foreign exchange controls. But it will always be possible for them to do so.

Right now, the market of the Western world is generating a variety of protection services from government interventions. Interestingly, none of these protection services is particularly new. People have used Swiss banks for over 100 years. Smuggling money across exchange control barriers is merely a new variant on one of the world's oldest professions. People have avoided taxes for as long as governments have tried to impose them.

What is new is that never before in history have there been so many people with assets to protect and the means to protect them. Never before has the market for knowledge been so large. The ease with which people can use Swiss banks, visit their lawyers in the Cayman Islands, find a tax advisory service in their local shopping center, or find so many affordable sources of information in books, magazines and newsletters is unprecedented. Never before has an expanding government attempted to control so many wealthy and knowledgeable citizens.

Knowledge is the key to asset protection. Right now, we're in the midst of a revolution in knowledge caused by the computer. Like jet travel, which immensely broadened every person's potential sphere of action, the computer has and will continue to add to our wealth in unknown ways. Just as $9.95 will get you a book (Harry Browne's Complete Guide to Swiss Banks) to tell you everything you need to know about Swiss banks, so a $1,000 home computer, hooked over the telephone to data banks, mega-mega-byte memories, and mainframe processors promises a revolution in asset management as well as forms of information processing.

The overall effects of this revolution in knowledge and availability of information are impossible to predict. But it does seem certain that the market for asset protection services will expand dramatically in the next decade, spurred not only by more government intervention but by lower costs and greater affluence.

The result could be that, for the first time in history, the market beats government down.

If you know how to protect your assets, you usually know why you need to do so. You know, if only vaguely, the political causes behind high taxes, inflation, and intervention. The expanded availability of protection services translates, in the future, into one or both of two responses:

• an enormous and uncontrollable black market in response to price, wage and a variety of other authoritarian controls which could be imposed in the event of hyperinflation;

• a political rejection of the authoritarianism implicit in government attempts to control inflation, unemployment and other economic ills.

History has proved that economic instability, e.g. inflation, results in political instability. We can trace the rise of Hitler directly to the German hyperinflation of the 1920's. The knowledge that Americans can get simply by walking into a bookstore was unavailable in the Germany of the 1920's. If ignorance results in people turning to a Leader who will solve all their problems by deciding their answers for them, then perhaps knowledge provided by the market in response to a definite need for asset protection will result in people turning, not to a Leader, but to the market.

Only time will tell. But one thing is certain: an abundance of knowledge is available to you. Without much trouble and expense, you can find out most things you need to know about protecting your assets. Use them! We can't know, yet, whether Americans will turn to the market or a Leader when the inevitable collapse arrives. If they make the wrong choice, you have only yourself to blame if your assets do not survive.

* Raw data from International Financial Statistics, May 1978, IMF, Washington, DC; Bank of International Settlements' Annual Report, 1976-77, Basel, Switzerland.